BRUSSELS, Oct 26 (Reuters) - The European Commission on Thursday said it had opened an investigation into whether a British scheme exempting certain transactions by multinational companies from British measures targeting tax avoidance constitutes illegal state aid.
At stake is an exemption introduced in 2013 to the British Controlled Foreign Company (CFC) rules which exempts interest payments received from loans of multinational groups active in Britain from reallocation to Britain and therefore British tax.
“Rules targeting tax avoidance cannot go against their purpose and treat some companies better than others,” EU Competition Commissioner Margrethe Vestager said in a statement.
“This is why we will carefully look at an exemption to the UK’s anti–tax avoidance rules for certain transactions by multinationals, to make sure it does not breach EU state aid rules,” she said.
CFC rules aim to prevent British companies avoid British taxation by using a subsidiary based in a low or no tax jurisdiction by allowing British tax authorities to reallocate all profits shifted to the subsidiary back to the British parent company.
But the so-called Group Financing Exemption means that financing income received by the offshore subsidiary from another foreign group company will not be reallocated to the British parent, shielding it from Britain’s tax.
The Commission said it had doubts whether the exemption complies with EU state aid rules forbidding preferential treatment of some companies over others. (Reporting by Julia Fioretti)